Retailer’s Guide to eCommerce Taxation Around the World

If you’re planning on selling goods online, it’s essential that you first carefully consider all the taxes that you’re going to be paying to different authorities. While eCommerce has made it extremely easy for a seller to sell their goods to any part of the world, it also has brought about a new form of taxation, known as the eCommerce tax.

Countries around the world levy taxes on eCommerce in different ways. The two major hubs of manufacturing and online selling are the USA and Europe. While the USA has something known as an eCommerce Sales Tax, Europe charges a tax known as EU VAT. In this article, we’ll take a closer look at what they are and how can you as a retailer get better at tax compliance.

USA (eCommerce Sales Tax)

eCommerce sales tax is levied in the US on the amount of sales carried out by a retailer. Sales tax is a type of consumption tax, meaning that it’s levied on only the items that are consumed by the retail customers.

eCommerce sales tax is levied in 45 US states as well as Washington DC. In the US, sales tax is a part of state legislation, which means there is no uniform sales tax across the country. This also means that the items on which tax is levied are also different for different states.

Retailers who are involved in interstate eCommerce may find themselves paying different taxes as they navigate through the system.

Europe (eCommerce VAT)

Across most parts of Europe, a tax known as VAT or Value Added Tax is levied on eCommerce purchases. However, there is a difference between a US sales tax and VAT in Europe. Unlike in the US where the sales tax is applied only to the final consumer, the VAT is levied at each stage of the supply chain. This means that the manufacturers, suppliers, distributors as well as final customers all have to pay the VAT.

The EU VAT is applied to every one of the 28 member countries. However, some special territories are excluded from it, including Channel Islands (UK), Canary Islands (Spain), etc. While the generic implementation of VAT is uniform across the EU, each country can weigh in on the hard print and decide how they want to apply them.

VAT is charged only on the orders within the EU. For any exports outside the EU, special import duty is paid. VAT is not levied on such orders.

Keep an eye on states wise taxation

With eCommerce, there’s a fair chance that your orders aren’t just limited to one state or region. When you’re delivering across state borders, different state taxes are levied on your products. Keep this in mind while pricing your products as well as your deliveries. Failure to comply with the taxes may result in heavy fines and penalties.

Ensure you have the proper permits.

Before starting your business, carry out thorough research on all the tax permits you require. The permits would depend on the state you’re residing in and also the nature of your products. For example, some states may require additional licenses for selling pharmaceutical products, while some may need additional paperwork if you’re selling alcoholic products.

It is therefore vital that you have all the necessary paperwork filed before you send out that first order so that you do not have to face any fines or penalties.

Track e-commerce sales tax legislation

Across the countries, there is always newer legislation being introduced to protect the rights of all the parties involved. However, implementing these legislations may have consequences on your businesses. You may have to pay an additional amount of tax or maybe getting a tax discount on some of your products.

In either case, it’s extremely important for you to keep up with these laws in the regions that you operate in.

eCommerce taxation can often become a bit of a hassle, especially if you’re new to the world of retail. However, it is one of those things that get easier as the time goes by. Initially, you can always ask for assistance from an expert or use a software that takes care of your compliance related activities. All of this can be taxing, no pun intended, but is also extremely rewarding as it saves you from unwanted penalties.